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1 The Board of Executives Report on Business Activity of BNP Paribas Bank Polska SA Group in 2014 BNP Paribas Bank Polska SA with its registered office at ul. Suwak 3, registered with the District Court for the capital city of Warsaw, XIII Commercial Division of the National Court Register (KRS), under KRS no. 6421, VAT PL: (NIP), holding paid-up share capital of PLN 1,532,886,

2 TABLE OF CONTENTS: 1. SUMMARY OF THE BUSINESS ACTIVITY OF BNP PARIBAS BANK POLSKA SA GROUP IN CHANGES IN THE GROUP OWNERSHIP STRUCTURE IN INTENDED MERGER OF BANK GOSPODARKI ŻYWNOŚCIOWEJ SA WITH BNP PARIBAS BANK POLSKA SA FINANCIAL AND BUSINESS HIGHLIGHTS EXTERNAL FACTORS THAT INFLUENCED THE OPERATION AND DEVELOPMENT OF THE GROUP IN FACTORS THAT IN THE ISSUER S OPINION WILL AFFECT THE RESULTS GENERATED AT LEAST IN THE SUBSEQUENT QUARTER STOCK PERFORMANCE ON THE WARSAW STOCK EXCHANGE SHARE CAPITAL AND SHAREHOLDER STRUCTURE SHARE CAPITAL OF BNP PARIBAS BANK POLSKA SA ISSUE OF SERIES O SHARES AND CHANGES IN THE SHARE CAPITAL STRUCTURE INFORMATION ON SHAREHOLDERS HOLDING, DIRECTLY OR INDIRECTLY THROUGH THEIR SUBSIDIARIES, AT LEAST 5% OF THE TOTAL NUMBER OF VOTES AT THE ISSUER S GENERAL MEETING BANK S PRODUCTS AND SERVICES AND DEVELOPMENT OF BANKING BUSINESS IN RETAIL BANKING (RB) INDIVIDUAL CUSTOMERS SEGMENTS PERSONAL FINANCE PRIVATE BANKING SEGMENT SME AND MICRO ENTERPRISES SEGMENTS CORPORATE AND TRANSACTION BANKING (CTB) OTHER BANKING ACTIVITY CLEARING ACTIVITY ANALYSIS OF BNP PARIBAS BANK POLSKA GROUP PERFORMANCE IN INCOME STATEMENT BALANCE SHEET CONTINGENT LIABILITIES - OFF-BALANCE SHEET COMMITMENTS BASIC RATIOS AVERAGE INTEREST RATE OF DEPOSITS AND LOANS ENFORCEMENT TITLES AND VALUE OF COLLATERAL MANAGEMENT OF FINANCING SOURCES PROSPECTS FOR ACTIVITY DEVELOPMENT OF BNP PARIBAS BANK POLSKA SA GROUP BASIC RISK TYPES AND RISK MANAGEMENT CREDIT RISK LIQUIDITY, FOREIGN EXCHANGE AND INTEREST RATE RISKS COUNTERPARTY RISK OPERATIONAL RISK LEGAL, ADMINISTRATIVE AND ARBITRATION PROCEEDINGS AFFILIATED ENTITIES PROFILE OF SHAREHOLDERS HOLDING OVER 5% OF VOTES AT THE GENERAL MEETING BNP PARIBAS BNP PARIBAS FORTIS SUBSIDIARIES TOWARZYSTWO FUNDUSZY INWESTYCYJNYCH BNP PARIBAS POLSKA SA (INVESTMENT FUND COMPANY) FORTIS LEASE POLSKA SP. Z O.O. IN LIQUIDATION BNP PARIBAS FACTOR SP. Z O.O MINORITY INTEREST AGREEMENTS SIGNIFICANT FOR THE GROUP S ACTIVITY MAJOR AGREEMENTS SIGNED WITH THE BNP PARIBAS GROUP ENTITIES AGREEMENTS WITH INTERNATIONAL INSTITUTIONS SIGNIFICANT AGREEMENTS WITH CUSTOMERS NOT AFFILIATED WITH THE BANK AGREEMENTS WITH THE CENTRAL BANK AND THE REGULATORS INSURANCE AGREEMENTS AGREEMENTS WITH AUDITOR ORGANISATIONAL STRUCTURE BANK AUTHORITIES BUSINESS LINES AND SALES OUTLETS STAFF BANK AUTHORITIES THE COMPOSITION OF THE BANK'S BOARD OF EXECUTIVES AS AT 31 DECEMBER THE COMPOSITION OF THE BANK S SUPERVISORY BOARD AS AT 31 DECEMBER INFORMATION ON SHARES OF THE BANK HELD BY MEMBERS OF THE BOARD OF EXECUTIVES AND THE SUPERVISORY BOARD INFORMATION ON THE BOARD OF EXECUTIVES AND SUPERVISORY BOARD MEMBERS REMUNERATION CORPORATE SOCIAL RESPONSIBILITY (CSR) CORPORATE GOVERNANCE BOARD OF EXECUTIVES REPRESENTATIONS

3 1. SUMMARY OF THE BUSINESS ACTIVITY OF BNP PARIBAS BANK POLSKA SA GROUP IN 2014 BNP Paribas Bank Polska SA Group (hereinafter referred to as "the Group") is a member of BNP PARIBAS, the leading European financial institution operating at the international level. As at 31 December 2014, the Group comprised the following entities: BNP Paribas Bank Polska SA (hereinafter referred to as "the Bank", "BNPP Polska") parent company and three subsidiaries: o o o Towarzystwo Funduszy Inwestycyjnych BNP Paribas Polska SA (hereinafter: "TFI BNP"); Fortis Lease Polska Sp. z o.o. in liquidation (hereinafter: "FLP in liquidation"); BNP Paribas Factor sp. z o.o. (hereinafter referred to as "BNP Paribas Factor"). The Bank is the Group s parent company and holds 100% of shares in the subsidiaries' share capital, which entitle to exercise 100% of votes at the general meeting/ meeting of shareholders. All subsidiaries are covered by consolidation. The Group's ownership structure is presented below: 1.1. Changes in the Group ownership structure in 2014 On 15 February 2014, by virtue of an agreement on the enterprise sale and debt takeover signed by and between Fortis Lease Polska Sp. z o.o. (FLP) as the seller and the Bank as the buyer, the FLP's enterprise was transferred in favour of the Bank as in-kind remuneration for shares redeemed, which accounted for 99.9% of FLP's share capital. As a result of transferring the FLP's enterprise in favour of the Bank, the leasing operation conducted by FLP was incorporated into the Bank's structure. The lease enterprise transfer in favour of the Bank is an element of consolidating and reducing the number of the BNP PARIBAS group entities in Poland. Furthermore, the purpose of incorporating the lease business into the Bank's structures was to improve operating results and achieve cost effectiveness. On 1 July 2014 Fortis Lease Polska Sp. z o.o. liquidation proceedings were instituted by way of the resolution of the Extraordinary Meeting of FLP Shareholders dated 30 June On 9 July 2014, liquidators of FLP in liquidation, pursuant to Article 279 of the CCC, gave an announcement on the company's dissolution and opening of liquidation and they requested creditors to lodge their claims within 3 months of the announcement date, namely until 9 October On 27 May 2014, following registration of the series O shares, issued with pre-emptive rights excluded and subscribed by investors in the public offering, the share of BNP Paribas Group decreased from 99.89% to 85.00% of the total number of votes at the Bank's general meeting, while the free float of shares held by minority shareholders increased to 15.00%. As a result of a division of the liquidation property of Dominet SA, the former shareholder of the Bank holding directly 5,243,532 shares accounting for 15.55% of the Bank's share capital, which entitled Dominet SA to exercise 5,243,532 votes at the Bank's general meeting - on 25 June 2014 all these 5,243,532 shares were acquired directly by BNP Paribas Fortis, while the share of Dominet SA in liquidation in the total number of votes in the Bank went down to zero. Dominet SA was liquidated and deleted from the register of entrepreneurs. 3

4 1.2. Intended merger of Bank Gospodarki Żywnościowej SA with BNP Paribas Bank Polska SA On 10 October 2014, the Management Boards of BNP Paribas Bank Polska SA and Bank Gospodarki Żywnościowej SA (BGŻ) agreed and announced the Merger Plan of both banks pursuant to Art. 498 and 499 of the Act of 15 September 2000 the Code of Commercial Companies (CCC) (consolidated text: Journal of Laws of 2013, item 1030, as amended). The Merger will be effected pursuant to Article 492 1, item 1 of the CCC by way of transferring all property (all assets and liabilities) of BNP Paribas Bank Polska SA (the Target Bank) to BGŻ (the Bidding Bank), with a concurrent share capital increase in BGŻ from the amount of PLN 56,138,764 to the amount of PLN 84,238,318 by way of the issuance of 28,099,554 shares of BGŻ with the nominal value of PLN 1.00 (the Merger Shares), to be delivered by BGŻ to the existing shareholders of BNPP Polska. Under the Merger Plan, the following share exchange ratio was decided upon: in exchange for six (6) shares of BNPP Polska, shareholders of BNPP Polska will receive five (5) Merger Shares. All property of BNPP Polska will be transferred to BGŻ on the day of the Merger registration in the register of entrepreneurs of the National Court Register maintained by the competent registration court having jurisdiction over the venue of the BGŻ s registered office. The BGŻ s share capital increase through the issuance of the Merger Shares will be registered on the same day. As a result of the Merger, BGŻ will assume all rights and obligations of the Bank, and the Bank will be wound-up without liquidation proceedings. The merged Bank will operate under the name Bank BGŻ BNP Paribas Spółka Akcyjna. The legal merger is scheduled for the first half of In November 2014, the Management Boards of BGŻ and BNPP Polska obtained the statutory auditor s opinion confirming that the Merger Plan was prepared correctly and accurately. It is anticipated that the merger of the Bank and BGŻ will bring benefits to both banks, their customers, as well as shareholders (including minority shareholders), and will allow achieving the following objectives: capital position strengthening, liquidity improvement, sales network expansion, competitive position in the market, capturing synergies in the form of reduced operating costs, likewise strengthening and simplifying the management system. On 17 November 2014 BNPP and BGŻ notified KNF of the intended purchase of shares of Towarzystwo Funduszy Inwestycyjnych BNP Paribas Polska SA by BGŻ as a result of the Merger. The Merger of the Bank and BGŻ will be effected after all the required consents and regulatory permissions have been obtained, including: (i) the KNF's consent to the merger and modifications in the BGŻ Statute, (ii) and the KNF's decision on raising no objection to BGŻ acquiring shares in Towarzystwo Funduszy Inwestycyjnych BNP Paribas Polska SA, (iii) approval of Information Memorandum by the KNF with reference to the public offering of the merger shares and admitting them to trading, and (iv) decision of the relevant regulator on raising no objection to the strategic decision of BNP Paribas Fortis SA/NV which constitutes basis for the Merger, or lapse of statutory time given to the regulator to issue a decision objecting to the strategic decision. On 4 December 2014 a request was filed with the Polish Financial Supervision Authority for permission to merge the two institutions pursuant to Art. 124 of the Banking Law Act. The BGŻ's Information Memorandum was approved by the KNF and then announced on 16 February 2015 On 25 February 2015 (after the balance sheet date) the Extraordinary Shareholders' Meetings of both banks were held, at which the shareholders adopted the merger resolutions Financial and business highlights The Group of BNP Paribas Bank Polska SA closed 2014 with the after-tax profit of PLN million, i.e. higher by 0.9% than the result earned in Excluding the impact of one-off items and expenses incurred in 2014 for the intended merger of Bank Gospodarki Żywnościowej SA and BNP Paribas Bank Polska SA, amounting to PLN 7.4 million, the after-tax profit would grow by PLN 6.1 million (5.9%). Development of the Group in 2014 and conditions underlying its growth: 5.0% increase in gross loans to customers as compared to the end of 2013 was mainly caused by an increase in the loan portfolio of large enterprises, growth of factoring receivables, higher balances of loans to finance dealership activities thanks to cooperation started with KIA Motors Polska and Hyundai Motor Poland, and active sale of consumer credits; 13.7% growth of customer deposits, as compared to the end of 2013, arising mostly from the increase of deposits held by large enterprises and individual customers; Stable capital situation of the Group the total capital adequacy ratio at 12.9% and Tier 1 at 10.4%; In May 2014, the Bank finalised the public share issue project thanks to which the commitment to increase the free float on the stock exchange to 15% was fulfilled and the Bank's own funds went up by PLN million, after factoring in the share issue costs; The Group's net banking income increased by PLN 3.0 million (0.4%), despite the impact exerted by the oneoff income item on the net profit of 2013 (PLN 19.1 million), and lower non-interest income. Excluding the effect of the one-off item, the net banking income would rise by PLN 22.1 million (2.7%). Despite a material drop of market interest rates and no impact of one-off items, the net interest income grew by 5.2%; 2.9% increase of the Group's general expenses and depreciation - continued focus on the strict cost control allows the Group to invest in business development while avoiding any significant cost increase. In H2 2014, the Group incurred costs of PLN 7.4 million, related to the intended merger of Bank Gospodarki Żywnościowej SA with BNP Paribas Bank Polska SA. Continuation of the prudent risk management policy the cost of risk ratio (computed as the quotient of the cost of risk and the average balance of gross loans to customers as at the end of the four subsequent quarters) stood at 0.6% in Improved quality of the loan portfolio - the share of non-performing loans in the total loan portfolio of the Group fell from 8.5% recorded at the end of 2013 to 7.1% at the end of December

5 1.4. External factors that influenced the operation and development of the Group in Market and economic situation abroad In H1 2014, leading indicators in the eurozone were heading north. It was not reflected in the GDP data, however, which remained on a softer side. During January-March, the economy in the eurozone expanded by a decent 0.5% q/q, which pushed the annual growth up to 1.1% y/y from 0.4% y/y in Q Still, the pace of growth in Q2 and Q3 considerably decelerated as GDP increased by 0.8% y/y in both quarters. The slowdown was primarily down to deterioration in relations between European Union and Russia. The conflict was fuelled by hostilities in Eastern Ukraine and annexation of Crimea by the Russian Federation. Consequently, bilateral sanctions between EU and Russia were implemented in July and August. European Union, among others, banned long-term financing of Russian banks and oil companies. Meanwhile, Russia imposed an embargo on food imports from the EU. According to European Commission s calculations the measures implemented by the EU should dent the rate of GDP growth by 0.3pp in 2014 and 0.4pp in In the fourth quarter of last year economic growth slightly accelerated to 0.9% y/y chiefly down to robust households consumption. Consequently economic growth in 2014 also averaged 0.9% y/y. The US economy noted a weaker start of the year. In Q1 GDP fell 2.1% q/q (annualized). Still, the decline in GDP was primarily due to very unfavourable weather conditions in early 2014, which, among others, damped households consumption. A soft beginning of the year was offset in Q2 and Q3 when the economy expanded by 4.6% q/q and 5% q/q (annualised) respectively. The key triggers for economic growth during April-September were private consumption and business investment. In Q4 the US economy lost some momentum and GDP grew by 2.2% q/q (annualized). In late 2014 growth was still primarily driven by robust households spending which was propped up by a steady upturn on the labour market. Meanwhile net exports were the drag on the growth pattern. Stronger goods and services imports were consistent with robust consumption demand. Consequently, the GDP growth in US averaged 2.4% y/y in Central banks in high developed economies continued expansionary monetary policies. Still, discernible divergence in the economic cycle in eurozone and US resulted in huge differences in conducting policy in the two biggest world economies. While the FED continued tapering asset purchases (QE) and ended QE3 programme in October, the European Central Bank delivered a number of instruments aimed at the economy stimulation and fight against stubbornly low inflation. At its June meeting, the Governing Council lowered its main policy refi rate by 10bp to 0.15% from 0.25%. The council decided also to cut the deposit rate by 10bp, pushing it below 0% (-0.10%). Aside from tweaks in interest rates the Council decided also to launch four-year targeted long-term refinancing operations (TLTRO) worth in total EUR 400 billion. TLTRO are intended to support credit growth in the eurozone which in turn should boost economic growth and allow the inflation to get closer to the ECB target. To a similar end, the Council suspended SMP sterilization to add extra liquidity to the market. In September, however, the Governing Council concluded that the implemented measures were insufficient to secure the retreat of inflation back to the target. To support the monetary policy transmission mechanism the Council decided to lower all main policy rates by 10bp. Separately, the Council launched an asset purchase programme which included asset backed securities and covered bonds. In January 2015, the risk of inflation remaining below the target in the mid-term inclined the Council to launch the long awaited sovereign bond purchase programme. The Council announced that it will buy EUR 60bn assets monthly (including the assets bought under the asset purchase programme launched in September). The programme should remain in place until September 2016 at least and should expand the eurosystem s balance sheet to EUR 3.1trn (i.e. the balance sheet level in mid-2012). According to the Council ample monetary expansion resulting from the broad-based asset purchase programme, should secure bringing CPI inflation back to the target. At the same time, the Bank of Japan carried on their program of doubling its balance sheet, which should allow Japan to escape the deflation trap and secure faster economic growth in the years ahead. In October the BoJ decided to increase the annual pace of monetary base expansion to JPY 80trn from JPY 60-70trn. To achieve it the BoJ stepped up its purchases of long-term government bonds. In 2014, emerging markets economies showed signs of further weakness. The conflict between Ukraine and Russia, which resulted in the Russian annexation of Crimea, and the introduction of bilateral EU-Russia sanctions pushed Russia to the brink of recession. Although Russian GDP rose by 0.5% y/y in 2014 we expect that the economy will shrink by a hefty 6.5% y/y in 2015, as the ongoing hostilities between the Ukrainian army and pro-russian separatists pose a risk of the conflict re-escalation. We expect that the plunge in Russian production will primarily stem from high inflation, which will harm households real disposable income impeding private consumption. Other emerging economies also showed symptoms of weakening. The Chinese economy, which has been based on strong investments growth for years, faces structural reforms which will translate into at least temporary deceleration in GDP growth. Meanwhile, Brazil is coping with low GDP growth which is accompanied by high inflation. Lower demand from developing economies entailed a decline in commodity prices on the global market. In November the OPEC s decision on maintaining the oil production at unchanged level prompted a tumble in oil prices. Brent oil price plunged to USD 50/bbl in early 2015 from USD 80/bbl in November. Although lower oil prices bode well for global growth, GDP dynamics in many emerging markets whose economic performance is highly reliant on oil exports (for instance Russia), will be sizably damped Polish economy in 2014 GDP growth rate and components In 2014 economic growth in Poland averaged 3.3% y/y. The key driver supporting the expansion was domestic demand which rose by 3.6% y/y. An exuberant 9.7% y/y growth in investment played a big role in the growth pattern. Separately, households consumption increased 3.1% y/y, chiefly due to an upturn in the labour market and low CPI inflation. Meanwhile, net exports were a drag on growth, a development which chiefly mirrored lower sales of goods to Russia. (Note, according to 2013 data, approximately 5% of Polish exports were destined for the Russian market). In the first months of 2014, the Polish economy has been accelerating. GDP rose by3.4% y/y in Q well above the 3.0% y/y growth noted in the final months of The key drivers supporting economic growth in early 2014 were private consumption and investments, while net exports growth contribution notably fell. In Q2 the pace of economic growth moderately picked up to 3.5% y/y. The deterioration in EU-Russia relations started to feed through into the activity data during July-September. Consequently Polish economy rose by 3.3% y/y in Q3. The growth structure remained similar to previous quarters, however, with domestic demand propelling the economy In Q4 the economy expanded by 3.1% y/y. A mild deceleration in the growth dynamics reflected stronger demand for foreign goods and services, which was confirmed 5

6 by the imports data. Monthly activity data along with leading indicators suggest that pace of economic growth in Q4 remained similar to July- September and reached about 3.2% y/y. In 2014 industrial production growth averaged 3.4% y/y compared to 2.3% y/y in Meanwhile, nominal retail sales rose on average 3.1% y/y in 2014 compared to somewhat weaker 2.4% y/y growth in Construction production was on average higher by 5.3% y/y in 2014 in contrast to the 11.6% y/y fall in The numbers point to a recovery in the construction sector after a somewhat softer period following the European Championship in football EURO A stronger situation tion in the sector was also reflected in the investments data in the first three quarters of last year. Chart 1. GDP and domestic demand growth rate in (Source: Reuters EcoWin) Labour market Accelerating economic growth translated into a significant upturn urn on the Polish labour market. After reaching last year s maximum at 13.9% in January, the unemployment rate gradually fell to 11.3% in October. In late 2014 seasonal factors pushed the rate up, however the increase was lower than in previous years. Consequently, the unemployment rate in December amounted to 11.5% and was 1.9pp lower than in December Corporate sector employment rose on average by a decent 0.6% y/y in 2014 compared to a 0.5% y/y decrease in The employment data are consistent with stronger labour demand in the corporate sector which augurs well for the economy in the coming months. According to survey data, companies report a lack of qualified workers, which suggests further growth in employment, rising employees bargaining power and eventually larger wage pressures. In 2014 corporate sector wages growth discernibly accelerated to 3.8% y/y from an average of 2.6% y/y in Although, compared to past years nominal wages growth remained moderate, due to low (and for part of the year even negative) consumer prices growth, in real terms wages increased by 3.8% y/y which was the fastest pace of growth since As a result real earnings in the economy rose on average by 4.4% y/y, which heralds strong private consumption in the months ahead. Inflation In January 2014 CPI inflation stood at 0.5% y/y. After a mild pick-up to 0.7% y/y in February, inflation started to gradually decelerate reaching 0.3% y/y in June In July the dissipating base effect on waste collection costs (in July 2013 waste collection prices were hiked by about 50%) pushed headline inflation below zero. In the next few months negative inflation was gradually deepening. The downward move stemmed chiefly from steady decreases in food prices due to elevated supply. High food supply on the domestic market was primarily down to the Russian embargo and an ample harvest. In late 2014 the tumble in oil prices on global markets translated into a marked decline in fuel prices locally. As a result consumer prices deflation deepened to 1% y/y in December. At the same time, core inflation remained fairly stable and hovered around 0.5% y/y. In 2014 CPI inflation averaged 0.0% y/y compared to 0.9% y/y in In the coming months we expect headline inflation to remain negative e chiefly due to very low oil prices. Nevertheless, we expect CPI prints to mark the trough in Q and to start to head north from spring onwards. Still we expect inflation to turn positive only in mid We envisage also CPI inflation to drift towards 1% y/y in the final months of the year, being fuelled by higher food prices, due to base effects, and accelerating core inflation stemming from, among others, relatively high wages growth. Chart 2. CPI inflation and core inflation (excluding food and energy prices) growth rate (Source: Reuters EcoWin) 6

7 Balance of payments In early 2014 official reserves amounted to EUR 78.5 billion. In the first half of the year they were falling and reached EUR 74.7 billion in June. In the latter half of the year, however, they started to rise again to EUR 82.6 billion in December. In 2014 the deficit on the current rent account amounted to EUR 5.3 billion which is similar to the negative balance noted in The modest increase stemmed chiefly from softer trade balance, reflecting the tense situation between EU and Russia on one hand and robust Polish domestic demand on the other. Consequently, the trade deficit during January-December amounted to EUR 36 million, compared to EUR 0.6 billion surplus in the corresponding period of The recovery in eurozone s activity, which is Polish key exports market, should translate into a positive trade balance in the coming months. The positive balance in services amounted to EUR 7.1 billion in 2014 and was lower than in the previous year when it amounted to EUR 8.0 billion. The balance on the primary income account was stronger than in 2013 and the deficit amounted to EUR 12.7 billion in 2014 compared to EUR 13.5 billion in The surplus on the capital account in the first eleven months of 2014 rose to EUR 10.0 billion from EUR 9.0 billion in the corresponding period of The deficit on the financial account during January-December amounted to EUR 2.9 billion compared to EUR 5.4 billion in the corresponding period of In contrast to 2013, when the negative balance on the financial account stemmed from inflow of direct and other investments, last year the deficit resulted only from a considerable influx of foreign direct investments. The balance of foreign direct investments amounted to EUR -5.9 billion and was notably lower than in 2013 when it stood at EUR -2.9 billion. Separately, the balance of portfolio investments amounted to EUR 0.7 billion compared to EUR -0.1 billion in the corresponding period of The portfolio investment balance reflected stronger domestic entities demand for foreign debt instruments; Last year domestic entities spent EUR 2.4 billion on debt instruments compared to EUR 0.7 billion in Public finances Stronger economic growth resulted in a considerably lower budget deficit in 2014 than assumed in the budget law. According to tentative estimates budget deficit in 2014 amounted to less than PLN 30 billion compared to PLN 47.5 billion deficit assumed in the budget bill. Better data on the budget deficit were due to both higher revenues, mirroring the strong pace of economic growth, and lower spending. Consequently the general government deficit amounted to roughly 3.3% of GDP in In the budget bill for 2015 the authorities assumed a PLN 46.1 billion deficit which should push the general government deficit below 3% of the GDP. This should incline the European Commission to lift the excessive deficit procedure on Poland. As a result of the pension system reform and phasing out of government bonds that were held by Open Pension Funds (roughly PLN 120 billion) the public debt in relation to GDP decreased by over 7pp to approx. 49.5%. The move markedly reduced the debt servicing costs. After the pension system reform, only 15% of pension contribution payers remained in the OPF which notably decreased the transfers from the social system to the OPF. The government announced that due to negative inflation it will implement a one-off off tweak in the pension revaluation in The pensions will be raised by at least PLN 36. The government announced also introduction of tax breaks for families with more than two children. The overall cost of the amendments should be contained in the PLN 3-5 billion range. Exchange rate In the first half of 2014 the zloty exchange e rate was fairly stable and was primarily driven by the geopolitical situation. Despite the risk of an escalation of the conflict between Russia and Ukraine the zloty exchange rate remained relatively stable, though its volatility increased. Until December 2014 EURPLN hovered in the range. Just before the yearend Zloty depreciated more markedly against euro and was traded at The move was prompted by low liquidity on the market during the Christmas period rather than by a fundamental change in the Polish currency outlook, however. USDPLN dynamics followed EURUSD over the course of last year. Considerably better economic prospects in the USA resulted in a marked appreciation of euro against the US dollar, which implied a similar appreciation of USDPLN. Hence after the first half of the year when USDPLN was traded a touch above 3.00, in the latter half of 2014 Zloty steadily depreciated against the US Dollar. Consequently in late 2014 USDPLN stood at CHFPLN oscillated in the range for most of the year, tracking the EURPLN. In January 2014 the Swiss National Bank decision to abandon the EURCHF 1.20 floor implied an abrupt massive Zloty depreciation against Swiss Franc. Consequently, CHFPLN rose above 4.00 levels in January Chart 3. USD/PLN and EUR/PLN rates since 2012 (Source: Reuters EcoWin) Interest rate After finishing the easing cycle in July 2013, during which rates were lowered by 225bp and the main policy rate reached its lowest level history (2.50%), the Monetary Policy Council (MPC) have kept the rates on hold. In March 2014, the MPC announced that rates would remain unchanged until the end of Q3. In Q2 lack of inflationary pressure coupled with a mild activity slowdown implied expectations for monetary policy easing, however. In September the Council suggested a possibility of policy easing and in October cut the main policy rate by 50bp to 2.00%. Separately the Council cut the 7

8 Lombard rate by 100bp to 3.00% and kept the deposit rate on hold. During the November meeting the MPC received a new NBP s staff economic projection. Although the inflation path remained below the 2.5% inflation target over the entire forecast horizon, the MPC decided to leave the rates unchanged. The inaction was justified by upbeat prospects for economic growth. Nevertheless the deepening deflation resulted in a gradual build-up up of rate cuts expectations. In light of the ECB decision to launch a broad-based based asset purchase programme, which may prompt an undesirable Zloty appreciation, the MPC will decide to cut interest rates by 50bp in March, when policymakers will digest the new inflation projection, we think. Our expectations are consistent with the Council statement from the February meeting In 2014 bond yields fell across the curve and the curve flattened out, which reflected higher expectations for interest rate cuts in Poland in the months ahead. Yields dropped also on the back of monetary policy easing delivered by the ECB. The yields on the 10y and 5y bonds fell by approximately 180bp and 150bp to 2.50% and 2.10%, respectively. The yields on the short-end of the curve declined by roughly 120bp to approximately 1.80% for 2y bonds Banking sector in 2014 In 2014 the condition of Polish banks remained solid. The non-performing loans ratio for corporate sector fell by 0.3pp to 11.2% in December ember from 11.5% in January. The overall ratio including households dropped by 0.5pp to 7.2% in November from 7.7% in January. The loan-to-deposit ratio declined to 110% in December from 113.7% in January. The 275bp decrease in interest rates in conjunction with economic recovery supported stronger credit dynamics. In December corporate credits rose by 8.8% y/y compared to a modest 1.5% y/y growth in corresponding month of Meanwhile households credits increased by 5.5% y/y compared to a 4.5% y/y growth in December Consumer credits were up by 3.8% y/y in December ember while housing loans increased by 5.1% y/y. The share of FX- denominated housing loans decreased to 46.1% in December from 50.2% in January. Lower interest rates reduced the attractiveness of deposits, however the growth rate of deposits among corporates and households remained solid and hovered around 8% y/y in late Banks' financial results In September the capital adequacy ratio inched up to 14.9% from 14.6% in March The Tier 1 ratio amounted to 13.7% in September confirming decent capital position of banks. The liquidity conditions in the sector remained stable. The net financial result amounted to PLN 15.4 billion in November and was PLN 1.2 billion higher than in the corresponding period of At the end of Q3, ROE and ROA edged up to 11.0% and 1.19%, respectively, from 10.4% and 1.14% noted in Q Chart 4. Credit facilities and deposits to enterprises in the years (Source: Reuters EcoWin) Chart 5. Credit facilities and deposits to households in the years (Source: Reuters EcoWin) 1.5 Factors that in the issuer s opinion will affect the results generated at least in the subsequent quarter Key factors that may affect the Group's future performance include the following: Tentative economic recovery signs can be noticed in Poland, which in turn translates into more optimistic projections for the Polish GDP. The European Commission forecasts that the Polish GDP will rise by 3.2% in 2015 and 3.4% in 2016 as compared to growth by 1.7% and 2.1%, respectively, in the entire European Union. Yet the geopolitical instability (for instance the crisis in Ukraine) and the still uncertain prospects for the EU economy may adversely affect the macroeconomic situation, which may have in turn an adverse impact on the Group's financial standing and results. 8

9 Stabilisation of the NBP interest rates at very low level may result in lower costs of financing of individual customers and enterprises, which should translate into growth of demand for loans. On the other hand, low interest rates may discourage households from saving in bank deposits and thus have an adverse impact on profitability of non-interest bearing deposits. Most banks in Poland still focus on consumer loans in view of shorter repayment terms, improved margins, and stabilization of the NPL ratio thanks to improved methods of assessing credit risk and sale of the non-performing loans portfolio. This growing competition may weaken the Group's ability to achieve the assumed targets regarding consumer loans sale, but on the other hand, a strong increase in demand for loans will favour the accomplishment of the Group's targets. It is expected that as a result of the economic recovery, lending will grow in the entire sector, which will also affect the increase of liquidity requirements towards banks, which may result in more fierce competition in deposit acquisition and margin decline. Increase in fees for the Bank Guarantee Fund in 2015 as compared to The annual fee has increased from 0.1% to 0.189%, whereas the prudential fee from 0.037% to 0.05%, which will affect the cost level in Costs of the above fees will continue to be recognized on an accrual basis. As a consequence of the decision of the Swiss National Bank dated 15 January 2015 to no longer maintain the fixed minimum CHF/EUR exchange rate at 1.20, the exchange rate of the Swiss franc substantially appreciated against the main currencies, including the zloty. The NBP mid-rate as at 14 January 2015 stood at PLN for 1 CHF, whilst on 30 January 2015 the NBP mid-rate amounted to PLN for 1 CHF. A portion of the portfolio of mortgage loans held by the Group is denominated in CHF, yet depreciation of PLN against CHF will have limited impact on FX risk and liquidity risk as the Bank was granted a stable, long-term financing that matches the specific nature of the Bank's loan portfolio. The growth of CHF mortgage loans value after conversion into PLN, with unchanged collateral value, resulted in the need for additional provisions as at the end of January 2015 in the amount of PLN 10.4 million, including PLN 8.6 million impairment provisions and PLN 1.8 million of IBNR provision. However, the conversion of mortgage loans at the rate valid on the loan granting day or at another rate could have material adverse impact on the operations, performance, financial standing or development prospects of the Group. On 29 January 2015 another amendment to the Payment Services Act (adopted on 28 November 2014) became effective. Its main purpose is to further decrease interchange fees from 0.5% of the turnover for all types of cards down to 0.2% of a debit card domestic transaction or 0.3% of a domestic transaction made by a credit card or a payment card other than a debit or credit card. The above changes will reduce the profitability of cards (interchange fee is one of the key components of card-related income). Nonetheless, they will have negligible impact on the Group as card-related fees and commissions do not play a substantial role in the Group's revenues. On 31 March 2015, Recommendation U issued by KNF to regulate bancassurance activities, will enter into force. One of the main assumptions of Recommendation U is to limit opportunities for banks to earn income on offering insurance products in the form of group insurance agreements. The Bank has been working on alignment of the bancassurance activity pursued with the requirements set by the Recommendation U, in particular with respect to changing the model under which insurance products are offered into an agent model where the Bank will act as a multi-agent. 9

10 2. STOCK PERFORMANCE ON THE WARSAW STOCK EXCHANGE The Bank's stock labelled with the ISIN code: PLPPAB has been listed on the Warsaw Stock Exchange SA in Warsaw (WSE) since 9 November The Bank's stock listed under an abbreviated name: BNPPL and a ticker symbol: BNP - is classified in the 250 PLUS segment. They are included in the following indices: WIG, WIG-Poland, WIG-BANKI, swig80 and InvestorMS. Since 11 June 2014 the free float of shares has significantly increased, alike liquidity of the Bank's stock. As many as 5,026,539 shares of new series "O" issue were introduced to public trading and acquired by retail and institutional investors, as well as shares of series "L", "M" and "N" of previous issues owned by BNP PARIBAS group. At the first session in January 2014, the Bank's stock was traded at PLN The Bank's share price fell to PLN on 11 June 2014 after change in valuation due to an increase in free float shares from 0.11% to 15%. At the end of 2014 the share price amounted to PLN The highest Bank s share price in 2014 was recorded on 5 February 2014, when it stood at PLN and the lowest on 5 August 2014 at PLN The average share price in 2014 amounted to PLN 73.00, and was lower compared to the average share price of PLN in An average turnover in the Bank s stock was 3,166 shares per session in 2014 and was higher in comparison to the average turnover recorded in 2013 (almost 41 shares per session). An average value of the turnover in the Bank s stock per session was PLN 179 thousand in 2014, and was higher than the average value of the stock turnover of PLN 3.9 thousand per session in Chart 6. Quotations of the Bank's stock from 3 January 2014 until 30 Dec ,00 fixing rate [PLN] volumen [no.] ,00 MAX ( ) MIN ( ) , , ,00 0 WIG, a stock exchange index, rose from 51, points noted on 2 January 2014 up to 51, points recorded on 30 December 2014 (increase by 0.9%). WIG-Banks, a sector sub-index, recorded an increase from 8, points noted on 2 January 2014 to 7, points recorded on 30 December 2014 (i.e. by 1.1%). 10

11 3. SHARE CAPITAL AND SHAREHOLDER STRUCTURE 3.1. Share capital of BNP Paribas Bank Polska SA As at 31 December 2014 and as at the publication date of the annual report for 2014, i.e. 06 March 2015: the share capital of the Bank amounts to PLN 1,532,886, registered and fully paid up; total number of shares: 33,719,465 ordinary bearer shares (series A to O), which entitle their holders to 33,719,465 votes at the Bank's general meeting of shareholders, all shares are dematerialised and quoted on the regulated market operated by the WSE. nominal value of one share - PLN All the Bank s shares are bearer shares that entitle to equal voting rights and participation in profit under the same rules. There are no preferences or restrictions related to any group of shares Issue of series O shares and changes in the share capital structure Within the fulfilment of BNP PARIBAS group s commitment to the Polish Financial Supervision Authority ("KNF") to increase the free float of the Bank s shares to at least 15%, the Bank conducted a public offering of shares in On 7 April 2014, the Bank's Annual General Meeting resolved to increase the share capital by the amount not higher than PLN million through a new issue of up to 5,026,539 series O shares, with pre-emptive rights of the existing shareholders excluded. On 11 April 2014, the Bank confirmed its intention to increase the share capital through a public offering of shares, and to increase the free float of the Bank's shares at the Warsaw Stock Exchange. On 22 April 2014, KNF approved the issue prospectus of the Bank. An underwriting agreement was concluded under the terms and conditions set out in the prospectus, whereas the Bank and BNP Paribas Fortis SA/NV and "Dominet" S.A. w likwidacji made the lock-up commitment. After disclosing the issue prospectus on 23 April 2014, the Bank initiated the public offering brought to a close by allotment of shares on 6 May The offering included up to 5,026,539 shares of new series O shares issue. Under the public offering the Bank issued the maximum number of offered shares i.e. 5,026,539 shares at an issue price of PLN 46 each. The gross proceeds from the share issue were PLN million. Under the subscription in the public offering, all the offered shares were allotted, of which 166,093 shares were allotted to retail investors and 4,860,446 shares - to institutional investors. On 27 May 2014, the District Court for the capital city of Warsaw, XIII Commercial Division of the National Court Register registered the Bank's share capital increase from the amount of PLN 1,304,380, up to PLN 1,532,886,878.90, i.e. by PLN 228,506, as a result of the issue of 5,026,539 ordinary bearer series O shares. In addition to the issue of series O shares, on 11 June 2014 the Bank's shares of the previous issues were introduced to public trading on the primary market: 5,243,532 series L shares, 2,108,794 series M shares and 4,569,420 series N shares Information on shareholders holding, directly or indirectly through their subsidiaries, at least 5% of the total number of votes at the issuer s general meeting As at 31 December 2013 the shareholders structure specifying the major shareholders with at least 5% of the total number of votes at the General Meeting of Shareholders was as follows: Entity name Number of shares % of the share capital Share capital (in PLN) Number of votes at the general meeting Share (%) in the total number of votes at the GM BNP PARIBAS indirectly through: 28,661, % 1,302,953, ,661, % BNP Paribas Fortis SA/NV 23,418, % 1,064,582, ,418, % Dominet SA (in liquidation) 5,243, % 238,370, ,243, % Minority shareholders 31, % 1,426, , % Total: 28,692, % 1,304,380, ,692, % BNP Paribas Fortis SA/NV based in Brussels was the parent entity (100% shares) of Dominet Spółka Akcyjna w likwidacji (in liquidation). On 27 May 2014, following registration of the series O shares, issued with pre-emptive rights excluded and subscribed by investors in the public offering, the share of BNP Paribas Group decreased from 99.89% to 85.00% of the total number of votes at the Bank's general meeting, while the free float of shares held by minority shareholders increased to 15.00%. As a result of a division of the liquidation property of Dominet SA, the former shareholder of the Bank holding directly 5,243,532 shares accounting for 15.55% of the Bank's share capital, which entitled Dominet SA to exercise 5,243,532 votes at the Bank's general meeting - on 25 June 2014 all these 5,243,532 shares were acquired directly by BNP Paribas Fortis SA/NV based in Brussels, while the stake of Dominet SA in liquidation in the total number of votes in the Bank went down to zero. As at 31 December 2014 and the 2014 annual report publication date, i.e. 06 March 2015, the shareholders structure specifying the shareholders with at least 5% of the total number of votes at the General Meeting was as follows: 11

13 4. THE BANK S PRODUCTS AND SERVICES AND DEVELOPMENT OF BANKING BUSINESS IN 2014 The operations of the BNP Paribas Bank Polska SA Group are divided into three business segments: Retail Banking (RB), including Personal Finance dedicated to consumers loans; Corporate and Transaction Banking (CTB); other banking activity Retail Banking (RB) provides services to individuals and small and medium enterprises that generate a turnover up to PLN 60 million; 221 own and franchise branches and 27 SME financial centres; 379,833 individual customers as at 31 December 2014 compared to 365,689 as at 31 December 2013; Personal Finance (PF) provides its services to 157 Retail Banking customers (PF has been offering retail and wholesale financing to car dealers since June 2014); 39,184 enterprises (SME & Micro) as at 31 December 2014 compared to 33,810 as at 31 December ,361 FTEs as at 31 December The Retail Banking segment specialises in providing financial services to individual customers, private banking services, likewise services intended for small and micro enterprises. The segment offers also advisory services as regards all forms of daily banking, savings, investment and financing products. Within the Retail Banking, the Bank provides services to the following customer segments: Mass Market Individual Customers segment customers with net monthly income / incomings to accounts held at the Bank up to PLN 2.5 thousand, or customers investing assets through the Bank up to PLN 7.5 thousand; Aspiring Individual Customers segment customers with net monthly income / incomings to accounts held at the Bank between PLN 2.5 thousand and PLN 7.5 thousand, or customers investing assets through the Bank between PLN 7.5 thousand and PLN 45 thousand; Affluent Individual Customers segment customers with net monthly income / incomings to accounts held at the Bank between PLN 7.5 thousand and PLN 30 thousand, or customers investing assets through the Bank between PLN 45 thousand and PLN 250 thousand; Prestige Individual Customers segment customers with net monthly income / incomings to accounts held at the Bank at minimum PLN 30 thousand, or customers investing assets through the Bank in the minimum amount of PLN 250 thousand; Private Banking segment - the Private Banking group of customers who invest assets through the Bank in the minimum amount of PLN 600 thousand, and the Wealth Management group of customers holding assets above PLN 5 million; SME customers including two segments: o o Medium Enterprises segment (ME) - business customers with an annual turnover between PLN 8 million and PLN 60 million; Small Enterprises segment (SE) - business customers with an annual turnover between EUR 1.2 million and PLN 8 million or with a lower turnover but keeping full accounting books; Micro business customers including three segments: o o o Professionals segment business customers with an annual turnover up to EUR 1.2 million who keep simplified accounting and perform a specific profession consistent with the entrepreneur's competence: lawyer, pharmacist, architect, statutory auditor, investment consultant, tax advisor, surveyor, accountant, doctor, notary, property appraiser, dentist, veterinarian, sworn translator; Upper Micro segment - business customers with an annual turnover between PLN 0.5 million and EUR 1.2 million who keep simplified accounting; Mass Micro segment - business customers with an annual turnover up to PLN 0.5 million who keep simplified accounting Individual Customers Segments In 2014, the Bank developed its product offering for individual customers in order to enhance the activity of existing customers and acquire new ones. New customers were acquired mainly based on cash loans under preferential terms and a new offer for a personal account. In Q the Bank launched a new personal account named "Konto Dobrze Dobrane" (Well Suited Account) that replaced the previous offer of S, M, L and XL packages. The respective offer reflects the current market trends and customer requirements, rewarding active use of a personal account. Great flexibility is a distinctive feature of the offer that enables any customer to fine-tune a personal account to his/her personal needs. Under the offer of Konto Dobrze Dobrane, in addition to a savings and checking account (ROR), customers may choose from the following products and services: and in addition: free-of-charge savings account with a promotional interest rate of up to PLN 50 thousand, representing an interesting alternative to term deposits; MasterCard debit card; access to the internet banking system; overdraft for ROR account with the option of 0% interest rate in exchange for a fixed monthly fee; variants of assistance insurance packages; Money Back programme dedicated to a debit card. 13

14 In June 2014, a new personal account was made available for sale through the Internet under the name ikonto with a dedicated debit card and the Money Back programme for online payments. The process of opening the account is fully remote and does not require a customer's visit to the branch. This step is part of the Digital Banking development at the Bank. In addition to debit cards linked to ROR accounts, the Bank offers: credit cards: MasterCard Classic, MasterCard Sport, MasterCard Gold and MasterCard World Elite for customers of Private Banking and individual customers of the Prestige segment; MasterCard pre-paid cards. Card sales were supported by the following promotional campaigns: starting June 2014 the Bank run the campaign under the slogan "Płać kartą wygraj rower (Pay With a Card - Win a Bike) promoting active use of BNP Paribas payment cards, and the campaign "Prezent za kartę kredytową MasterCard (A Gift for MasterCard Credit Card) to boost sales of credit cards to the existing customers. in September 2014 the campaign advertising lower interest rates for credit cards was launched to promote active use of the credit limit; since December 2014 the Bank's customers could benefit from the campaign "Zapłać kartą odbierz nagrodę (Pay With a Card - Get Your Price) inciting customers to actively use payments cards. Since April 2014, payment cards issued by BNP PARIBAS have a 4-year validity term. In addition, the Bank has lowered the required minimum repayment for credit cards to 3% (i.e. PLN 30). Persistently low market interest rates, and hence low interest rates of term deposits, fuelled customers' interest in earning a higher level of profits on their savings. In order to satisfy the above need, the Bank offered to its customers the following investment products: in February 2014, foreign sub-fund Global Partners PL KBC Point Capped 4. The sub-fund is based on a basket of companies which operate in the most developed regions of the world, and its strategy is to protect the principal amount at the level of 95% at maturity, with a chance to gain 25% within one year and a half of the investment term, in April 2014, in collaboration with Open Life Towarzystwo Ubezpieczeń Życie S.A. - the Bank sold a two-year structured product in the form of a group life insurance and endowment with Insurance Capital Fund WiborProfit 2014, where profits of investors are dependent on the WIBOR 3M index. in July and August 2014 customers could buy units of Global Partners Zabezpieczenia Aktywów Sierpień 90 - foreign subfund of the open-end fund following the CPPI strategy. The subfund invests assets in monetary funds, bonds and equity funds managed by entities in the KBC Group. The subfund strategy assumes protection of the principal amount at 90% of the net asset value on each anniversary of the subfund operation. in October 2014, in collaboration with TUnŻycie Warta S.A. - the Bank offered a two-and-a-half-year structured product in the form of a group life insurance with Insurance Capital Fund GlobarStars II, where profits of investors are dependent on the BNP Paribas Income Star Funds Index. Investment products are complementary to the deposit offer. The Bank in 2014 promoted deposits for customers who chose to deposit new funds in the Bank using the following deposit products: Prosta Lokata - 1-month renewable deposit, with promotional interest rate for the first interest period; Naj Lokata - 3-month renewable deposit, with promotional interest rate for the first interest period; this product is also available through the Call Centre; Lokata Dobrze Procentująca - 3-month non-renewable deposit, which at maturity is transferred into a customer's savings account. The above-mentioned deposits were on offer until December 2014, fuelling further growth of the deposit base. In 2014, a further increase in sales of bank products for individual customers could be observed: sales of cash loans in 2014 totalled PLN 1,016.8 million compared to PLN in 2013, which means 4.2% growth; sale of credit cards significantly increased. In 2014 it amounted to 20,590 cards with credit limits exceeding PLN 56.8 million, which represents an increase of over 15% compared to 2013, when the Bank sold 16,980 cards with credit limits of PLN 49.4 million; the number of newly concluded agreements on overdraft facility in ROR accounts in 2014 amounted to 19,140 for the total amount of PLN 53.2 million, compared to 17,553 agreements, signed in the same period of 2013, for the total amount of PLN 46.6 million, which accounts for over 14% growth in the value of credit limits granted; as at the end of 2014, the balance of total deposits from individual customers of the following segments: Mass Market, Aspiring, Affluent and Prestige - rose by 29.9% compared to the balance as at the end of 2013; in 2014, sales of investment products increased by 13% and exceeded PLN 269 million, while at the end of 2013 the sales amounted to PLN million Personal Finance The Personal Finance division is responsible for the Bank s consumer finance activities, featuring three key products: cash loans mainly distributed through the branch network but also sold via the internet and call centre; car loans for new and used cars; financing is mainly initiated by used car dealers and authorised dealers; credit cards - offered to customers who signed a cash loan or a car loan agreement paired with a credit card. Personal Finance is the driving force behind acquisition of individual customers, income earning and boosting profitability. Since June 2014 PF has been the provider of retail and wholesale financing for car dealers. The Personal Finance is also in charge of the following key processes: signing-off applications for loans to consumers and micro-businesses, approving loans based on certain acceptance criteria; 14

15 receivables recovery; telephone customer service provided by the Contact Centre, CRM (cross-selling) actions and loan sales by phone. Cash and car loans were ranked first in the rankings of Internet portals - Comperia.pl, TotalMoney.pl and Bankier.pl. Cash loans In 2014, a promotional offer for cash loans Wiosna 2014 with the Guarantee of the lowest total cost of a loan was launched, with attractive financial conditions dependent on opening a personal account at the Bank (Konto Dobrze Dobrane) along with life insurance for a borrower or job loss insurance. The promotional offer guarantees obtaining by a customer a cash loan offer with a lower total cost of the loan compared to the loan offer received from another bank, for identical parameters of the loan (amount, currency, financing term, borrower's identity). In the second half of 2014, the financing conditions for cash loans on offer were modified owing to the interest rate changes brought by the Monetary Policy Council. Car loans In 2014 the Bank expanded car loan offer to include: Car lease a promotional offer "Wiosna 2014 with the Guarantee of the lowest total cost of a loan" for financing a car purchase or refinancing of car loans or vehicle purchase; in the second half of 2014 customers could benefit from a promotional offer for car loans financing a purchase of new and used cars up to 19 years old, including vehicles with total allowable weight above 3.5 tonnes; agreements concluded with Hyundai Motor Poland Sp. z o.o. and Kia Motors Polska Sp. z o.o. in June 2014 enabled the Bank to introduce the financing scheme for dealership showrooms of the above car makes in Poland. The next step was to launch promotional credit offers for specific Kia cars (available from authorised dealerships); a promotional offer for car loans for employees of Kia and Hyundai authorised dealerships as well as new product Kredyt niski procent (Low interest rate loan) with an importer subsidy for the key Kia dealers; a new offer with lower interest rate for all authorised car dealers, new products for Volvo dealer showrooms; financing for a purchase of Triumph and Ducati motorcycles based on importer subsidies. In addition to car loans, the Bank's offer also entails operating lease and finance lease (in the amount from PLN 20,000 to PLN 500,000) available for passenger cars and trucks up to 3.5 tons, scooters, motorcycles and quads. Credit Cards Credit cards are provided to customers who signed a cash loan or a car loan agreement paired with a credit card. Available limits vary between PLN 2,000, 3,000, 4,000 and 6, Private Banking Segment The Private Banking business line serves the Bank s most affluent individual customers (or their investment entities), with liquid assets exceeding PLN 600,000, who expect an exceptionally high level of services and specialised investment advice. In the Private Banking segment the Bank provides integrated asset management services and solutions for affluent individuals and companies established for investment purposes. The services offered include: daily banking, services of the Brokerage Office, investment products and also investment and insurance solutions; wealth planning, credit facilities, alternative investments. All the rendered services are carefully selected and offered in accordance with the MIFID regulations implemented into the Polish legislation. The Private Banking customers have full access to the Retail Banking range of products and an array of prestigious debit, credit and charge cards dedicated to the Private Banking segment. The cards provide access to concierge, assistance services and travel insurance. The card offer encompasses MasterCard BNP Paribas World Elite and American Express Centurion charge card. The Brokerage Office dedicates its services only to customers of the Bank's Private Banking Department. The services offered include: accepting and forwarding orders to acquire or sell financial instruments (in cooperation with Dom Maklerski mbank S.A.), and investment advice service under which personalised investment recommendations are formulated for customers for a fee. Thanks to the services of the Brokerage Office, Private Banking customers receive recommendations and analyses that take into account individual needs and risk profile of the customers, in line with the global strategy of the BNP Paribas and the rules for selection of financial instruments applied by the BNP Paribas Wealth Management business line. The Brokerage Office has provided the Private Banking customers with the possibility of investing in the majority of financial instruments available on regulated markets in Poland and chosen foreign markets, including the EU and USA. Those instruments include e.g. shares, bonds, futures contracts, options, index units and exchange traded funds (ETF). Moreover, customers may participate in initial public offerings as regards shares and other financial instruments allotted through the Warsaw Stock Exchange. Customers are ensured access to a specialised asset management offer of TFI BNP Paribas Polska SA. The service is rendered on the basis of an estimated customer risk profile (conservative, defensive, balanced or dynamic) 15

16 and the following investment strategies may be pursued: participatory portfolio, domestic and foreign funds portfolios, likewise portfolios of domestic financial instruments. On 10 June 2014, the Financial Supervision Authority granted a permit to the Brokerage Office for management of portfolios, which include one or more financial instruments. The service was launched at the beginning of 2015, which contributed to expanding the offer targeted at the Private Banking customers. In addition, the Private Banking offering includes structured products, sold as insurance policies or Luxembourg investment funds, which are tailored to customer needs, likewise debt financial instruments and a wide range of domestic and foreign investment funds. In January 2014, the offering of foreign funds was expanded by Parvest funds, managed by BNP Paribas Investment Partners, and in March 2014 by BlackRock funds. The Private Banking customers have access to bank experts on wealth and inheritance planning. The Bank's offering comprises loans to Private Banking customers, including individuals and special purpose vehicles established to optimise wealth management. Customers may use such products as mortgage loans (also to finance real estate for lease), cash loans and overdraft limits, all denominated in PLN, EUR and USD. Other types of loans are tailored to individual customer needs SME and MICRO Enterprises Segments The Retail Banking business line provides products and services to Micro and SME customers with an annual turnover below PLN 60 million. The Bank's offering for these segments includes: accounts and packages; deposits and placement account; payment cards; credit products; liquidity management - cash management; trade finance; currency and interest rate risk management; other financial services (lease facilities, factoring, cash collection, financing agreement, purchase/sale of foreign currencies); a loan offer linked with the European Union financing programmes. With regard to the customers of the Micro segment, in 2014: to entice the Micro segment customers, the Bank conceived a promotional offer of a cash loan with a variable interest rate and highly attractive margin (starting at 1.95%), available with compulsory life and serious illness insurance. The promotion is accompanied by seasonal marketing campaigns (spring, summer 2014); maximum financing terms for unsecured cash loans for Mass Micro and Upper Micro segments were extended up to 7 years (for selected customer groups and loan amount brackets); a series of measures were taken to support the sale of loans in the Micro segment: cooperation with Practical Medicine (a prominent organizer of medical conferences and publisher of medical magazines), the action "Sąsiad" (Neighbour) - special price offering for companies operating within a radius of 8 km from the Bank's location), Rekomendujesz-zyskujesz (You Recommend-You Gain) programme (tablets for recommending customers and special pricing terms to recommended customers); sales via credit intermediaries was resumed with respect to an unsecured cash loan for the Professionals segment; the Bank promoted Model 7.0 available under Biznes Przelew package that gives a wide range of cost-free services to the Micro segment customers. The distinctive features of the package are cost-free maintenance of a bank account for active customers that maintain a predefined average monthly balance of funds in the account, payments and withdrawals in branches, transfers to Social Security and Tax Office, extended version of the electronic banking systems, a cost-free savings account as well as withdrawals from BNP and Euronet ATMs. In addition, with regard to the SME segment customers, in 2014: A new regional division (5 SME regions) and 27 Branches - SME Financial Centres serving solely SME customers, were introduced in FX experts were appointed for each SME region and central expert support for GTS products was provided. SME customers are now provided with support offered by specialists in lease facilities, factoring, FX, GTS and cash management. customers may buy currency options and interest rate options where a premium is paid on a transaction conclusion date; FX spot transactions (up to a determined amount) may be concluded with no need for the Bank to grant a transaction limit; a credit process has been simplified to shorten the time needed to take a credit decision and disburse funds; collateral monitoring system has been enhanced; sales process time and quality is now measured (SLA); Bank's customers may now benefit from guarantees under the governmental programme: Portfolio Guarantee Line De minimis that secure payment up to 60% of the working capital loan or investment loan under a state aid; guarantee (up to PLN 3.5 million) is granted for the maximum period of 27 months for working capital loans and 99 months for investment loans. The guarantee amount is also limited by the maximum allowable 3-year aid limit; a guarantee electronic module was activated in the Biznes banking system, via which customers may electronically issue instructions and service their own guarantees. In addition, the egwarancje application was launched to streamline and speed up customer service. SME network management processes have been reinforced; The Bank launched a series of marketing and relation-building measures, including: continuation of the Business Academy programme for managers selected in the Ranking of 500 Managers by Puls Biznesu, Skrzydła Biznesu 16

17 Polseff 2 (Business Wings) programme, "Rekomendujesz-zyskujesz" (You Recommend-You Gain) programme (tablets for recommending customers and special pricing terms to recommended customers), a series of press publications (ads and experts' opinions) (Gazeta Prawna daily), a series of meetings "Biznes na śniadanie" (Business for breakfast) with participation of the Bank's experts in factoring, cash management, Treasury, GTS and EU. The Polseff 2 Programme was implemented in August 2014 as the continuation of the Polseff 1 programme launched under the initiative of the European Bank for Reconstruction and Development (EBRD) available between June 2013 and June The new Programme, similarly to its previous release, is devoted mostly to energy savings and energy efficiency in small and medium enterprises. Financing is to be used for projects aimed at energy consumption reduction in enterprises, including thermomodernisation of buildings, modernization of machinery and implementation of new technologies that are significantly more energy efficient. Under the agreement with the EBRD, the Bank provides entrepreneurs with a possibility of a cost-free investment audit performed by engineers appointed to this Programme. Companies that will undergo an audit will obtain additionally a 15% bonus to a loan amount, whilst a 10% bonus is awarded to projects financed under the LEME list Energo Leasing GI In May 2014 a new product supporting sustainable growth was added to the offer for enterprises. In cooperation with the European Investment Bank (EIB), under the Green Initiative Programme (GI), lease facilities aimed at improving energy efficiency have been made available to SME customers. An investment incentive makes it possible for entrepreneurs to obtain a refund of up to 12% of disbursed financing. 17

18 4.2. Corporate and Transaction Banking (CTB) provides comprehensive financial services to large and medium-size companies generating annual turnover exceeding PLN 60 million, and to companies that belong to international groups; 9 Business Centres; 3,802 corporate customers as at 31 December 2014 compared to 2,975 ones as at 31 December 2013; FTE as at 31 December The activity of the Corporate and Transaction Banking segment focuses on medium and large enterprises, offering them a wide array of financial solutions. The Corporate and Transaction Banking customers are corporate entities and institutions whose annual sales revenues exceed PLN 60 million. They can be divided into four basic groups: Polish mid caps (annual revenues between PLN 60 million and PLN 600 million); multinationals (companies belonging to multinational business groups); Polish large corporates (annual turnover above PLN 600 million and potential for investment banking services); public sector and institutions. Among Corporate and Transaction Banking customers: Polish large corporations accounted for 5%, Polish mid caps - 33%, and multinationals - 53%, while the remaining group included public sector companies and institutional customers. In 2014, an initiative to increase the Bank's share in the market of Polish enterprises was continued. Effects of the strategy to intensively acquire customers in this segment are noticeable through increase of such enterprises' share in the entire CTB loan portfolio. Distribution channels The Corporate and Transaction Banking segment operates through Business Centres located across the country in large cities, which operate separately from the Bank's branches network. Presently, the Bank has nine Business Centres (BC): three in Warsaw, and one each in Kraków, Gdańsk, Katowice, Poznań, Wrocław and Łódź. In addition to the existing BCs, new CTB relationship managers were appointed in Szczecin, Bydgoszcz, Toruń, Lublin, Kielce, Rzeszów to serve customers locally. Internet banking The Bank offers enhanced online banking services through its and Connexis Internet banking platforms, tailored to the needs of its corporate customers (CTB and SME). enables users to customise the authorisation to access their account and it can be integrated with corporate accounting systems. In addition to the features available through the system allows customers to process all their transactions online, including opening and amending letters of credit and executing currency transactions (using the Deal on platform). Products and services The Bank provides a number of transactional banking and financing products for its corporate customers, supported by the BNP PARIBAS Group s expertise. The Bank s core corporate competencies include: global trade services full service of import and export letters of credit, guarantees and documentary collection, supply chain financing and export finance solutions. The Trade Finance Department offers speedy and reliable service including dedicated IT tools; deposits - overnight to term deposits indexed on WIBOR rates; cash management - an integrated approach to a group of products designed to cater both domestic and international cash flows of our customers, including competitively priced tools to support the management of receivables inflow and payment processing as well as comprehensive cash services, cash pooling schemes and advanced card solutions for business clients. In 2013 a new innovative model of transaction communication for corporate customers was implemented that integrates the customer's financial and accounting system with the Bank's servers ("host to host"). What makes this solution unique is that after integration of a customer system, the Bank becomes in fact a transaction centre which enables a customer to make payments by debiting accounts also held with other banks (in Poland) and to receive bank statements from other banks. corporate financing - overdrafts, revolving credit facilities, investment loans and EBRD/EIB programmes; structured finance for mid-caps - financing for acquisitions, large capital expenditures, structured bilateral or syndicated facilities in the PLN million range; real estate finance - for office, retail and logistic projects addressed to customers who: o o plan a construction or extension of commercial real estate using a construction loan; plan purchasing or refinancing commercial real estate through either an investment loan or leasing; investment banking expertise - services provided by the Corporate and Transaction Banking experts, including M&A advisory, project finance, equity and debt capital markets expertise; financial markets products - including FX spot and forward transactions either carried out by the Bank dealing room or through a competitively priced FX internet platform ( Deal on ) as well as FX options, FX swaps, interest rate swaps and other derivative products, which are offered in conjunction with the Fixed Income platform of Corporate and Investment Banking of BNP PARIBAS Branch in Warsaw; leasing and factoring services offered, respectively, through FLP (from 15 February 2014 by the Leasing Department of the Bank) and BNP Paribas Factor. In 2014, prepaid MasterCard business cards intended for business customers were introduced to the Bank's offering. The cards allow, among others, making cash and non-cash payments at all points of sale worldwide marked with the MasterCard logo, without the need to have foreign currency funds on the respective account, likewise making contactless payments using the PayPass technology. It is also possible to issue any number of cards to employees within one business account. In addition, prepaid cards may be issued to beneficiaries of municipalities, offices and public institutions in order to 18

19 provide social benefits, as well as provide a convenient tool for making benefit payments to employees. These cards are also available for the SME segment customers Other banking activity Operationally, the other banking activity is run by the ALM/Treasury Line. The Line's primary purpose is to ensure an adequate level of funding to enable running the banking business in a secure manner while adhering to legal norms. The ALM/Treasury Line manages the Bank's liquidity and determines internal and external reference prices. It manages the Bank's balance sheet interest rate risk, operational and structural FX risks. The above tasks cover both a prudential aspect (observance of external regulations and internal procedures) and an optimisation purpose (funding cost management and generation of the net income on the management of the bank's balance sheet items). The activity of the ALM/Treasury Line is pursued within three profit centres: the Treasury Department, Assets and Liabilities Management (ALM) and Corporate Centre. The main responsibilities of the Treasury Department include ensuring a balanced short-term liquidity position while optimising the cost of funding, ensuring a proper structure of assets and liabilities, including sensitivity to interest rates changes, likewise formulating and pursuing the FX policy. The assigned duties include managing short term liquidity positions in all currencies and managing short term interest rate risk and managing FX risk by concluding transactions in financial markets (such as money market cash transactions, FX transactions, FX swaps, FX spot and forward, IR derivatives, buying and selling State Treasury bonds and NBP bills). ALM is mainly responsible for ensuring a balanced medium and long-term liquidity position, while optimising the cost of funding, acquiring stable funding sources, managing the internal fund transfer pricing system, managing medium and long term IR risk, managing the bonds portfolio and investing the equity. The third profit centre is the Corporate Centre. Financial result of the Corporate Centre reflects transfer for management of own equity (at the internal reference price) Clearing activity Outgoing PLN payments to domestic banks are settled electronically only, through the ELIXIR and SORBNET2 systems. The Bank also pursues a clearing activity. The Bank participates in the EuroELIXIR system for handling domestic transfer orders in EUR. It also offers SEPA credit transfers and indirectly participates in TARGET2. 19

20 5. ANALYSIS OF BNP PARIBAS BANK POLSKA GROUP PERFORMANCE IN Income Statement The after-tax profit earned by the Group totalled PLN million, as compared to PLN million generated in Excluding the impact of a one-off income item and expenses incurred in 2014 in connection with the intended merger of Bank Gospodarki Żywnościowej SA and BNP Paribas Bank Polska SA, amounting to PLN 7.4 million, the after-tax profit would rise by PLN 6.1 million (5.9%), while the net banking income would be higher by 2.7% than in in PLN thousand vs 2013 Net banking income % Total operating expenses % Cost of risk % Net result on provisions % Net operating profit/loss % Net profit/loss from disposal of assets, shares and interest % Profit/loss before taxation % Income tax % Profit/loss after taxation % In 2014, the Group did not record any considerable one-off items. In 2013, the Group recorded the following one-off items: PLN 19.1 million: net income on account of the settlement of a prepayment of some credit facilities from the BNP Paribas Group (primarily a subordinated loan) with the positive mark to market, which affected the net interest income in the Other Banking Activity segment; PLN 20.0 million - the cost of provisions for legal risk related to litigation with the Bank's customers regarding derivative instruments, which affected the net result on provisions in 2013 in the following segments: Retail Banking in the amount of PLN 6.6 million, and Corporate and Transaction Banking in the amount of PLN 13.4 million Net banking income The chart below shows the structure of basic items of the net banking income in the periods compared. Excluding the impact of the one-off income item, which significantly increased the income of 2013, the NBI would be higher by PLN 22.1 million (2.7%). Chart 7. Net banking income structure (in PLN million) % Other income* Net trading income Net fee and commission income Net interest income Net interest income Net interest income, accounting for 68.4% of the total net banking income in 2014, prevails in the income statement structure. The net interest income was by PLN 27.8 million (5.2%) higher than in 2013 (after excluding the impact of the one-off item, the net interest income would rise by 9.0%); however, both the Group's interest income and expense decreased due to materially lower market interest rates. Chart Interest income structure (in PLN million) Other sources Investments available for sale Loans to customers Some financial data have been rounded and presented in PLN million or PLN billion, not in PLN thousand as in the Financial Statements. Accordingly, in certain instances the sum of numbers in charts may not conform exactly to the total figure. Some percentages in the tables and in charts have also been rounded and therefore they may not add up to 100%. Percentage changes between the periods compared have been calculated on the basis of original amounts, not the rounded ones. 20

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